Conventional Loans for Short Term Use?

Question

Do people use conventional, 30 year loans for fix and flips?  I have some cash, and a loan pre-approval from a bank. Not sure what 2014 will hold for me, but I was thinking that perhaps instead of using cash to do a rehab, I could buy a fixer upper with a loan, thus saving some cash, and use cash to do the repairs, and three or five months later, sell. There aren't really any lender fees I hear, and it is probably going to be sold on the secondary market. I kind of wanted to create a long term relationship with this lender. Is he going to kill me if he finds out I up and sold the house he loaned me on?  I just don't have enough experience to know about how conventional loans are used for rehabbing, so please share!

Jason Merchey · Answer

Thanks gentlemen. Yes, I am aware it need to have a roof of 5 years' life, and a heating source. Not sure if it needs to be as stringent as FHA specs though.

Wayne Brooks · Answer

The properties will need to be in "financeable condition", similar to FHA.

Cameron Sharp · Answer

It could work. Conventional loans will be credit based. The loan officer you are building a relationship will love you if he can write multiple loans. More commission for them :)

Some conventional lenders will have a max amount of loans you can get in a year. Even though you can save money compared to the fees of a hard money lender, conventional lending can take longer and present road blocks. In addition, make sure you get a non owner occupied loan if you go that route. Unless you fully intend to live in the property.

Conventional is heavily regulated and can cause road blocks for what you are trying to do.

Here are some difference between the 2. (from trustdeed capitol bog, no affiliation)

Conventional Lenders
	
		Banks, credit unions and other traditional sources of real estate investment capital are highly regulated by state and Federal laws, closely monitored by both their shareholders and executive boards and almost completely unable to fund a deal that is, in any way, unusual. While conventional lenders are ideal for the average homebuyer who will purchase a single-family home with a down payment and a conventional payment schedule, they are singularly unable to deal with multi-unit properties, development deals or other complicated investment opportunities. 
	
	Hard Money Lenders
	
		Private, hard money lenders are a completely different animal. They are typically seasoned business people, often with a specific real estate background, who understand the need for reliability, versatility and speed. More importantly, hard money lenders do not answer to anyone but themselves when a decision needs to be made. Of course, their real estate deals are covered by the same safeguards as conventional real estate loans but, in terms of unusual investment deals, hard money lenders are infinitely more flexible than standard lending institutions.

Conventional Lenders

Banks, credit unions and other traditional sources of real estate investment capital are highly regulated by state and Federal laws, closely monitored by both their shareholders and executive boards and almost completely unable to fund a deal that is, in any way, unusual. While conventional lenders are ideal for the average homebuyer who will purchase a single-family home with a down payment and a conventional payment schedule, they are singularly unable to deal with multi-unit properties, development deals or other complicated investment opportunities.

Hard Money Lenders

Private, hard money lenders are a completely different animal. They are typically seasoned business people, often with a specific real estate background, who understand the need for reliability, versatility and speed. More importantly, hard money lenders do not answer to anyone but themselves when a decision needs to be made. Of course, their real estate deals are covered by the same safeguards as conventional real estate loans but, in terms of unusual investment deals, hard money lenders are infinitely more flexible than standard lending institutions.